Regulatory and ethical challenges in artificial intelligence-powered insurance systems

Insurance refers to a system that manages risk and protects economic interests by compensating parties that suffer damages. While this concept has existed for centuries, the emergence of the internet and digitization has brought the insurance business into a new era. Today, insurance offers open digital channels for consumers to connect machines and algorithms with other machines and algorithms. Sellers, buyers, insurers, and insureds are all digital. Algorithms drive decisions that create the transactions that create the data. The system is a continuous loop in cyberspace. This new insurance model is known, collectively, as insurtech. Insurtech covers a wide range of solutions, enabled by new technologies, that aim at easing and enhancing the insurance process both for consumers and insurers (Binns, 2018; Dastin, 2018; Liu & Yang, 2021).

Insurtech is not only reshaping traditional practices; it also propels the launch of new models and covers. External data sources fed by technologies such as artificial intelligence, machine learning, big data, and the Internet of Things build a more daring way of zonification and risk pricing. Drones and automated processes create appetizing cybersecurity and parametric insurance covers. Other ad hoc emerging services reshape and influence custom insurance products as life insurance, using social media and other external data as leading drivers. Beyond traditional Insurance and Reinsurance companies, an entire new player ecosystem is speeding up its online digital development through innovative and disruptive solutions. Neotarification and user experience enhancements through customer journey simplifications and partnerships with non-insurance services are behind many Insurtech projects. Insurance products are being embedded or integrated into other services and applications (O'Neil, 2016; Suresh & Guttag, 2020).